Correlation Between SOUTHWEST AIRLINES and AB Volvo

Can any of the company-specific risk be diversified away by investing in both SOUTHWEST AIRLINES and AB Volvo at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining SOUTHWEST AIRLINES and AB Volvo into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SOUTHWEST AIRLINES and AB Volvo, you can compare the effects of market volatilities on SOUTHWEST AIRLINES and AB Volvo and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in SOUTHWEST AIRLINES with a short position of AB Volvo. Check out your portfolio center. Please also check ongoing floating volatility patterns of SOUTHWEST AIRLINES and AB Volvo.

Diversification Opportunities for SOUTHWEST AIRLINES and AB Volvo

-0.81

Correlation Coefficient

SOUTHWEST AIRLINES  AB Volvo

Pay attention - limited upside

The 3 months correlation between SOUTHWEST and VOL1 is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and AB Volvo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB Volvo and SOUTHWEST AIRLINES is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on SOUTHWEST AIRLINES are associated (or correlated) with AB Volvo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB Volvo has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and AB Volvo go up and down completely randomly.

Pair Corralation between SOUTHWEST AIRLINES and AB Volvo

Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to under-perform the AB Volvo. But the stock apears to be less risky and, when comparing its historical volatility, SOUTHWEST AIRLINES is 1.32 times less risky than AB Volvo. The stock trades about -0.08 of its potential returns per unit of risk. The AB Volvo is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,408  in AB Volvo on December 2, 2024 and sell it today you would earn a total of  567.00  from holding AB Volvo or generate 23.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

SOUTHWEST AIRLINES  vs.  AB Volvo

SOUTHWEST AIRLINES

Risk-Adjusted Performance

Very Weak

Over the last 90 days SOUTHWEST AIRLINES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

AB Volvo

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AB Volvo are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, AB Volvo reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SOUTHWEST AIRLINES and AB Volvo

The main advantage of trading using opposite SOUTHWEST AIRLINES and AB Volvo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SOUTHWEST AIRLINES position performs unexpectedly, AB Volvo can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in AB Volvo will offset losses from the drop in AB Volvo's long position.

The idea behind SOUTHWEST AIRLINES and AB Volvo pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.